ABC News Investigates For-Profit Education: Recruiters at the University of Phoenix

Aug. 19, 2010

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Recruiters from for-profit schools obtained $24 billion in student loan and grant money for the 2008-2009 school year, according to Government Accountability Office and Senate reports.

"These schools are marketing machines masquerading as universities," said Steve Eisman, a renowned hedge fund investor who made billions betting against the housing market, at a recent conference and during his testimony before the Senate on the for-profit sector. "I thought there would never again be an opportunity to be involved in the short side as an industry as social destructive and morally bankrupt as the sub-prime mortgage industry...Unfortunately, I was wrong."

Though for-profits get the lion's share of their tuition from financial aid, the default rates on loans for students who attended for profit schools are alarming. About 50 percent of the students at for-profits drop out, according to Eisman, so schools need to keep adding new students, and have to try to recruit just about anyone -- even those most vulnerable in society, he says.

Eisman's comments sparked controversy, and Miller lashed out at Eisman, calling his comparison of the career college sector to the subprime mortgage industry "silly" and "simplistic."

Miller also said Eisman's remarks must be considered in light of his alleged intentions as a short seller.

"It is no secret that the career education sector is under attack by short sellers, trial lawyers, self-styled consumer advocates, and some traditional academics. Although they should know better, these critics use anecdotes to generalize and to make sweeping condemnations of our sector," Miller said. "They seize on admittedly flawed government data to make the most extreme statistical arguments. They exploit the same small cadre of so-called third party experts to generate critical comments. And they recycle old news to give currency to new allegations. In short, they twist the truth to serve their self-interest."

But Eisman is not the only one leveling criticism at the for-profit education industry.

University of Phoenix Recruiter Goes to Homeless Shelter

Benson Rawlins was considered homeless last year when he met two recruiters from the University of Phoenix, who gave three seminars at Y-Haven, a shelter for transitional men in Cleveland, Ohio, or in effect, a homeless shelter.

Rawlins doesn't have a GED, but said the recruiters had no qualms trying to sell him an expensive associate's degree.

"It seems like it is just too much all about money," he said, "Instead of helping someone get an education."

The university told ABC News it does not tolerate recruitment at facilities like Y-Haven.

"We can assure you that anyone who participated in the recruitment of residents from homeless facilities in Cleveland no longer works for the University," said Alex Clark, a spokesperson for the University of Phoenix. "Any such activity is strictly forbidden by our Code of Business Conduct and Ethics, and employees who violate this policy face disciplinary action up to and including termination."

Harris Miller said even though the schools serve an important role by providing higher education to students who wouldn't ordinarily get one, many schools' recruiting practices need to be changed.